Republicans investigate loan guarantee program, Solyndra

Federal lawmakers held a hearing Friday to examine a federal agency’s role in approving renewable energy loan guarantees, particularly the $535 guarantee that went to solar panel maker Solyndra.

A House Energy and Commerce subcommittee wanted to hear from the Office of Management and Budget (OMB) to explain its support for approving the guarantee to Solyndra in 2009 to build a new factory. The hearing is part of an ongoing probe of a loan guarantee program, called Section 1705, that materialized as part of the 2009 stimulus package and is run by the Department of Energy.

Before the Friday hearing, the subcommittee issued a press release chastising the OMB for not turning over documents it had been seeking since March this year. The energy committee’s Republican chair, Rep. Fred Upton, earlier this year questioned the merit of awarding Solyndra the loan guarantee. The committee said its “leaders are investigating DOE’s use of stimulus funds, particularly the department’s highly publicized $535 million stimulus loan guarantee awarded to Solyndra of Fremont, California.”

Republicans took over of the House after the election last November and have been locked in bitter fights with the Democrats over the federal budget. They have portrayed the stimulus package as a failed attempt to rescue the economy. The loan guarantee program is meant to help finance renewable energy projects – factories or power plants – in order to create jobs. The DOE has awarded about $15.9 billion in loan guarantees to 29 projects so far.

The OMB representative the subcommittee summoned, Deputy Director Jeffrey Zients, didn’t show up at the hearing Friday. That prompted the committee to issue a press release Friday to highlight his no-show and hint at what it might do next (“Subpoenas now a possibility”).

Although the inquiry is about the OMB, it also continues to shine a spotlight on Solyndra, which also has faced its share of criticism in other quarters since it received the loan guarantee. The company started factory construction in September 2009.  While it was setting up the new factory in 2010, it withdrew a plan to raise money through an initial public offering,  announced the closure of its old factory and let go employees to cut cost. These moves raised questions about its ability to execute the plan it had crafted to expand manufacturing, create new jobs, make lots of money and pay back the loan.

Solyndra has since gotten a new CEO, Brian Harrison, who scaled back some of the company’s earlier, ambitious manufacturing goals. Harrison said the new plan will enable the company to compete more effectively. Whether Solyndra will succeed or fail remains a favorite subject among solar industry people.

Solyndra’s spokesman, Dave Miller, told us in an email Friday that the committee’s fight with the OMB will not affect Solyndra.

“While we support the oversight committee’s role and ability to look into the process we are very confident that the loan guarantee was awarded to Solyndra on merit, after an extensive due diligence process that spanned both the Bush and Obama administrations,” Miller wrote.

Miller said the committee is digging through the past while Solyndra is forging ahead.

“The factory is complete, tools are moved in and we are producing nearly 2 MW a week and will triple that over time. It’s a good time for Solyndra and we wish that was reflected in the House press releases rather than old news,” he added.

The House subcommittee is taking on the OMB because OMB is responsible for approving the credit subsidy cost of a loan guarantee. Credit subsidy cost is the estimated long-term cost to the government for offering a direct loan or loan guarantee. Credit subsidy cost can be substantial since loan guarantee applicants are seeking guarantees for loans worth hundreds of millions of dollars – a few have asked for more than $1 billion. The stimulus package provided funding for the loan guarantee program so that the government doesn’t have to require applicants to pay for the credit subsidy cost.

Through the loan guarantees, the government promises to pay back the loans if borrowers can’t. In many cases, the government is providing the loans as well, via the Federal Financing Bank. Solyndra received the loan from the bank.